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This Tax Day, Get the Facts

On Tax Day this year, it’s important to consider three important facts:

North Carolina is not a high tax state.

People pay lower taxes in North Carolina than the majority of other states. According to the most recent Census data, North Carolina ranks 33rd in total state and local taxes per capita ($3,384 per person). This is so far below that national average of $4,001 per person, the state would need to raise state and local taxes by $5.5 billion (or $617 per person) just to become middle-of-the-road.

In North Carolina, the share of state and local taxes paid by businesses is the lowest in the nation. A recent Ernst and Young and Council on Taxation study found that the state and local taxes businesses pay in North Carolina represented 3.6 percent of the Gross State Product in 2008. The national average was 4.9 percent. Every year numerous magazines and studies name North Carolina as one of the top states to do business, if not the most business-friendly state.

The public investments taxes allow us to make are worth it. The results benefit us all.

Public investments are necessary to ensure NC has a healthy, educated workforce and safe communities. This helps the economy and benefits every North Carolinian. For example, a recent study from the University of Minnesota found that one dollar of investment in high quality targeted education programs for at-risk youth from low income families produces an economic return of around six dollars. Other smart public investments, like job training, build a brighter future for everyone.

Public investment helps economic growth in times of crisis. Severe cuts to public spending slow economic growth as jobs are cut and projects are put on hold. In a recession, consumers and business stop buying, which stops money from flowing through the economy. Public programs, supported by tax dollars, put people to work and infuse the economy with capital, creating shared prosperity.

For a better tax system, make it fairer and more adequate.NC’s revenue system relies too much on contributions from low- and middle-income taxpayers. Currently, the system requires low-and moderate-income North Carolinians to pay a greater percentage of their total income than higher-income taxpayers. The poorest 20% of households, whose average annual income is $10,000, pay 10.7% of their incomes to state and local taxes. In contrast, the wealthiest 1% of families, whose average annual income is $970,000, pay only 7.1%. A tax system that relies on raising money from the people who have the least of it has direct implications on North Carolina’s ability to raise adequate revenues to pay for core investments and unaddressed needs.

It’s time for North Carolina to have a 21st century tax system. North Carolina’s tax revenues are falling at a greater rate than the larger economy because of the state’s flawed and outdated tax system. The last major overhaul to our tax system occurred more than seventy years ago during the Great Depression when agriculture and manufacturing were the backbones of our economy. But times have changed, and as a result, our state personal income, corporate income, and sales taxes capture an inadequate and decreasing portion of the state’s economic activity.

To make North Carolina’s tax system fairer and more adequate, we should consider the following changes:

• Broaden the base of the personal income tax and make it more progressive;

• Broaden the sales tax base to include digital downloads and services commonly taxed in other states; and

• Substantially increase the state Earned Income Tax Credit for working families.

• Close corporate tax loopholes and end ineffective business tax incentives.